PS3 to retail for $399

Sony's next-gen console will cost $494 to make, and analysts predict even the …

So last night we're sitting around in our living room having a couple of beers and the talk turned, naturally enough, to the next battle in the console wars. Keith chimed in about the supposed pricing for each new console and his predictions.

"The PS1 debuted at $299. The PS2, same thing," he said. "I just can't see Sony selling it any higher than that, especially with the XBox 360 retailing for that much." Everyone nodded their agreement.

It looks like we might all have to eat crow if Merrill Lynch Japan is right. Analysts at the firm predict that Sony's highly-anticipated PS3 will cost approximately US$500 to make in its debut year of 2006 and suggest that the console will retail for US$399. Yes, you read that right—almost four hundred dollars. With the XBox 360 likely to retail for US$299, chances are slim to none that Sony will be able to cut prices to compete with rival Microsoft.

Given that Sony's PS3 will face stiff competition from Microsoft's Xbox 360, the chances that Sony will release its console at its production cost is slim. Under the assumption that the Xbox 360 is expected to sell at around $299, Merrill Lynch Japan predicts that Sony will sell each PS3 at the price of 44,800 yen ($410) in Japan and $399 in America. That would mean Sony would suffer a loss of more than 130 billion yen ($1.18 billion) during the first year of the PS3's release.

Ouch. That's a lot of ground to make up, even if it is de rigeur to take a major financial hit during the first year of a console's release. The PS2 lost nearly half a billion dollars when it launched in 2000, but rebounded with profits of US$759 million in 2001 and US$1.03 billion in 2002. Is Sony hoping the third time's the charm with PS3 pricing?

Of couse, Keith did say, "Look, a lot of people are still going to say 'Yeah, that's like a couple days' extra pay' and buy it. It's all a matter of how much they really want it, and believe me, they'll want it." If that's the tactic Sony's taking, I might wait until it goes on sale instead.